The US Dollar Is So Strong That China's Central Bank, Among Others, Just Keeps Loading Up On Gold
The US Dollar Is So Strong That China's Central Bank, Among Others, Just Keeps Loading Up On Gold
Huileng Tan Wed, May 8, 2024,
China's economy is struggling, leading to a surge in gold purchases as a safe-haven asset.
Central banks are on a gold-buying spree, contributing to record-high spot gold prices.
Other central banks are also snapping up gold to diversify their assets on the back of a strong greenback.
China's economy is in a funk and people are rushing out to buy gold as a safe-haven asset to hedge against economic uncertainties, sending prices of the precious metal to record highs.
The country's central bank has also gotten into the act, adding 60,000 troy ounces of gold to its stash in April, according to official data released on Tuesday. It marked the 18th straight month the People's Bank of China was piling in on gold.
But it's not just about economic uncertainty. The heightened interest in gold is also a pushback to the strong US dollar, which is making it too expensive for emerging nations like China to import goods.
The Dollar Index — which measures the value of the green against a basket of six other currencies — has risen 4% this year and 10% since the start of 2022. This is due to the Federal Reserve's interest-rate hikes since March 2022, which tend to strengthen the dollar.
The Chinese yuan has lost 1.6% against the dollar this year to date. It's down 4% over the past 12 months and about 12% lower against the greenback since the start of 2022.
Other central banks are also loading up on gold. Big gold buyers include China, Turkey, and India, the World Gold Council, or WGC, wrote in a report last week.
"Accounting for almost a quarter of annual gold demand in both those years, many have attributed central banks' ongoing voracious appetite for gold as a key driver of its recent performance in the face of seemingly challenging conditions: namely, higher yields and US dollar strength," wrote the council.
In all, the world's central banks bought 290 tons of gold in the first quarter of this year — the strongest start to any year on record, per the WGC.
Central banks are not done buying gold
Even though central banks have bought a whole lot of gold since 2022, they may not be done yet, said the WGC.
"Not only is the long-standing trend in central bank gold buying firmly intact, it also continues to be dominated by banks from emerging markets," the WGC added.
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